Energy Outlook 2016 | North America

JLL’s top five key themes impacting energy markets

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Theme one: Macroeconomics factors influencing energy markets

Despite low oil prices, the U.S. marked its fourth year as the world’s top
producer of petroleum and natural gas in 2015, accounting for over twice
the production of Saudi Arabia, according to the U.S. Energy Information
Administration (EIA). Significant supply increases in the U.S. are directly
attributable to production from oil and gas shale formations as lifting costs
and break-even prices have decreased substantially in recent years. When
strictly examining crude oil production, the U.S. has grown substantially
year-over-year but remains third behind Russia and Saudi Arabia.

Theme two: State of oil and gas companies

Since June 2014, global energy prices have taken a sharp downturn,
leaving producers and sellers of oil and natural gas scrambling. As a result, the oil and gas industry in particular has seen companies dissolve and restructure through bankruptcy, explore mergers and acquisitions (M&A) and cut back on employment. As companies took on increased levels of debt over the boom years, many found themselves on unstable footing as revenue plummeted following the price collapse.

Theme three: The impact to upstream, midstream and downstream

Upstream:Upstream energy focuses on exploration and production in the oil and
gas business. The sector has been the hardest hit of the downturn,
receiving the brunt of negative impact surrounding low oil prices. Energy
companies who, based on the continuation of $100-a-barrel oil, overhired
talent, over-spent capital and over-leased office space during the
2010–2014 boom cycle, have been streamlining operations to cut costs
amid falling revenues.

Midstream:Midstream operations encompasses energy transportation and storage, providing a link between upstream and downstream. While the shale boom led to corresponding growth in the midstream sector, a new lower oil price environment and subsequent production declines now means fewer barrels are flowing through the pipeline network.

Downstream:
The downstream sector includes the refining and processing of oil and
gas into chemicals, plastics and other products. The shale boom and
subsequent decline in oil prices have had the opposite effect on the
downstream sector, fueling a revolution in the petrochemical industry.

Theme four: Regulations and Legislation

Hydraulic fracturing, or fracking, is arguably the most impactful
development in the American oil and gas industry. Since the fracking
boom began in earnest in the early 2000s when advancements in
technology enabled drillers to maneuver drill bit horizontally, the effect on
commercial real estate has been just as substantial, driving frenetic
growth in energy-linked office markets across the country.

Theme five: Trends in renewable energy

Roughly 80.0 percent of energy needs are met in North America by fossil
fuels, but the industry is rapidly changing. As natural gas moves to
supplant fossil fuels in the majority of power generation, renewable energy has continued to grow in investment and output thanks to heavy government subsidies, advances in capture and storage technologies, and consumer demand. Cost parity with non-renewable power sources
and corporate mandates—currently 60.0 percent of Fortune 100 companies have renewable energy commitments and/or greenhouse gas reduction commitments—have worked to exponentially expand renewables in North America.

To receive the full report, email the Minneapolis Tenant Representation Team